How Does Net Promoter Score Help Your Business?
Most business owners know that your company’s reputation is a vital piece of your marketing success. What people say about your business, your products, and services has the potential to grow or destroy your business.
But how can you really know what people think of your business?
Many businesses will use surveys to ask for feedback, but consumers often ignore these because they take a long time to complete.
However, over the years, the process of truly understanding what people think of your business has become more refined.
Today, many companies use a tool called ‘Net Promoter Score’ to better understand their potential for growth and long-term success.
Who Invented The Net Promoter Score?
In 2003, business strategist Fred Reichheld devised a straightforward, effective method for getting insight into how your business serves your customers.
In a Harvard Business Review article entitled ‘The One Number You Need to Grow,’ Reichheld introduced the concept of the Net Promoter Score (NPS). He explained that what matters most is the ‘customers’ willingness to recommend a product or service to someone else.’
With this logic, understanding who would (and would not) be a willing promoter of a business became the most important way to see how well the company would grow.
What is the Net Promoter Score?
In 2020, the Net Promoter Score is one of the most popular metrics for measuring customer satisfaction and loyalty. Used by Fortune 500 companies, including Apple, AT&T, Best Buy, Charles Schwab, eBay, Lego, Southwest, and many more, it goes beyond measuring if a person is a ‘satisfied customer.’ Instead, the Net Promoter Score system is designed to gauge their willingness to recommend it to others.
As Reichheld himself explained, “The tendency of loyal customers to bring in new customers—at no charge to the company—is particularly beneficial as a company grows. Truly loyal customers tend to buy more over time, as their incomes grow or they devote a larger share of their wallets to a company they feel good about.”
For these reasons, understanding which of your customers would be willing to recommend your business, products, and services is crucial to growing your business.
What Does a Net Promoter Score mean?
The Net Promoter Score is measured on an index (ranging from -100 to 100), which shows customers’ willingness to recommend a company’s products or services to others.
To calculate a net promoter score, the survey asks one simple question:
“On a scale of 0 to 10, how likely is it that you would recommend our organization to a friend or colleague?”
Based on the number a customer chooses, they are classified into one of the following categories:
0 – 6: Detractors
7 – 8: Passives
To get the Net Promoter Score, you use the following formula:
(Number of Promoters — Number of Detractors) / (Number of Respondents) x 100
Understanding the Net Promoter Responses
You will notice that more than half the score leads to a negative connotation or someone being a detractor. This grading is important to help determine the overall Net Promoter Score. The Net Promoter Score breaks down the respondents into three categories.
Promoters (Scoring 9 to 10)
Promoters are the most loyal, enthusiastic fans of a business. They will openly praise and promote to friends and colleagues about the company. Thus, they are far more likely to remain customers and increase their purchases over time. Moreover, promoters account for more than 80% of referrals in most businesses.
Passives (Scoring 7 or 8)
This group is known as ‘passively satisfied’ because this group is only currently satisfied. Their repurchase and recommendation rates are as much as 50% lower than promoters. Their referrals are likely to be qualified and less enthusiastic.
Detractors (Scoring 0 to 6)
Detractors are seen as unhappy customers. They account for more than 80% of the negative word of mouth that a business receives. They have high rates of churn and defection to other brands. Some detractors may appear profitable from an accounting standpoint, but their criticisms and bad attitudes can diminish a company’s reputation over time. They can also discourage new customers and demotivate employees.
Why Is Net Promoter Score Important?
In his HBR article, Fred Reichheld explains that ‘the only path to profitable growth may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department.’
Performing these calculations to figure out a New Promoter Score might seem overwhelming, but it’s well worth the effort. Numerous research studies have proven that the NPS system correlates directly with business growth.
And all it takes is a simple survey that asks one question. For anyone who does not rate above 6, you can follow up to see how you can improve their experience.
Often, those negative people can be turned into raving fans if they are listened to, and their needs are met.
Try this system out for your business. There are many software survey tools available on the market that can help manage the NPS process and help you understand what your customers feel about how your business.